Brussels, 10th May, 2004
Free movement of capital: infringement procedures against Denmark, Austria, Finland and Sweden concerning Bilateral Investment Treaties with non-EU countries
The European Commission has decided to send formal requests for information to Denmark, Austria, Finland and Sweden concerning possible incompatibilities with the EC Treaty contained in the Bilateral Investment Treaties these countries concluded with non-EU countries before acceding to the European Union. The Commission is concerned that the investment treaties in question may affect the application of powers reserved to the EU's Council of Ministers to adopt measures on the movement of capital to and from non-EU countries (by virtue of Articles 57.2, 59 and 60 of the EC Treaty). To the extent that the international agreements they have concluded before their accession are not compatible with the Treaty, Member States are obliged (according to Article 307 of the EC Treaty) to take all appropriate steps to eliminate such incompatibilities. The requests for information take the form of letters of formal notice, the first stage of infringement procedures under Article 226 of the EC Treaty, and are meant to stimulate a constructive dialogue with the concerned Member States in order to find solutions compatible with Community law.
The Bilateral Investment Treaties in question grant, in particular, unconditional rights to establishments of investors of non-EU countries to conduct international transfers freely. They also provide guarantees as to the treatment which will be accorded to that establishment now, and in the future.
While the EC Treaty rules provide for a wide-ranging freedom for capital movements and payments to and from non-EU countries, a limited number of exceptions nonetheless exist:
where, in exceptional circumstances, movements of capital to or from third countries cause, or threaten to cause, serious difficulties for the operation of Economic and Monetary Union, the Council of Ministers may, according to Article 59 of the EC Treaty, take safeguard measures with regard to non-EU countries for a period not exceeding six months.
Article 60 of the EC Treaty entitles the Council to take measures restricting capital movements and payments towards non-EU countries on grounds linked to the common foreign and security policy. This Article is, for example, the legal basis for EU financial sanctions against several countries, regimes and terrorist groups and entities.
Article 57.2 of the EC Treaty entitles the Council, under certain conditions, to restrict some types of capital movements, including direct investment, to and from on-EU countries. Restrictions in Community law (e.g. reciprocity conditions, performance requirements, Community ownership conditions in a limited number of areas) governing the treatment of investment from non-EU countries in specific economic sectors may be based on this Article. Some such provisions already exist and other may be adopted in future.
In the Commission's view, the bilateral investment agreements in question could hinder the application of restrictive EU measures the Council has decided on, or may decide upon, since nationals and companies of the non-EU country at stake could invoke the rights acquired under such international agreements before the accession to the EU of the Member State concerned.
Indeed, by virtue of Article 307 of the EC Treaty, Community law does not automatically prevail on international agreements concluded by Member States before the date of their accession. However, by virtue of that same Article, Member States are obliged to take all appropriate steps to eliminate possible incompatibilities contained in such prior international agreements.
Denmark's attention is also drawn to the fact that its agreement with Indonesia grants non-discriminatory treatment to investments, while it does not provide for a Regional Economic Integration Organisations ("REIO") clause which would allow preferential treatment to be accorded to its immediate EU partners only, without extension to the non-EU country involved. Thus, Denmark could be obliged to grant rights, which in specific sectors may be reserved to Community enterprises, to an investment from a non-EU country. This could result in further incompatibility with specific requirements of Community law in a number of sectors.
The Commission therefore requests information from Denmark, Austria, Sweden and Finland about measures taken, in accordance with Article 307 of the EC Treaty, to eliminate all incompatibilities which may exist in the various pre-accession bilateral investment treaties they have concluded with a number of non-EU countries.
The Member States in question are asked to submit their observations within two months. In the light of such observations, the Commission may decide to issue formal requests to the Member States concerned (in the form of so-called 'reasoned opinions') to change their bilateral investment treaties.
Bilateral Investment Treaties (BITs), in broad terms, are agreements concluded between two countries providing for the promotion of investment between the parties, as well as affording protection to investments of investors of both countries (e.g. against expropriation or nationalisation without fair compensation, providing for the freedom to transfer funds profits, royalties, capital, guaranteeing against the infringement of property rights, prohibiting the imposition of performance requirements, etc.). Most treaties grant national treatment (although often with specific sectoral exceptions) and most favoured nation treatment (but regularly qualified to the extent that better treatment may be granted to partner countries in the context of arrangements for regional economic integration a so-called "REIO" clause). They will also provide for a disputes' settlement procedure with State-to-State procedures usually complemented by investor-to-State procedures (thus providing access for individual investors to international arbitration). Investment is usually defined in very broad terms. A large network (2181 agreements in the year 2002) of such Bilateral Investment Treaties exists worldwide.